Please standby. We're about to begin. Good morning. My name is Jess, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vermilion Energy Q4 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Mr. Dion Hatcher, you may begin your conference.

Thank you, Jess. Well, good morning, ladies and gentlemen. Thank you for joining us today. I'm Dion Hatcher, President and CEO of Vermilion Energy. With me today are Lars Glemser, Vice President and CFO; Darcy Kerwin, Vice President, International and HSE; Bryce Kremnica, Vice President, North America; Jenson Tan, Vice President, Business Development; and Kyle Preston, Vice President of Investor Relations. We’ll be referencing a PowerPoint presentation to discuss the Q4 full year 2022 results. Presentation can be found on our website under Invest with Us and Events and Presentations. Please refer to our advisory and forward-looking statements at the end of the presentation, it describes the forward-looking information, non-GAAP measures and oil and gas terms used today and outline the risk factors and assumptions relevant to this discussion. In 2022, we delivered on our strategic priorities and continue to reposition Vermilion for long-term success. We remain focused on financial discipline and reduced net debt by another $300 million. We benefited from strong European gas prices as a result of our international diversified asset base, we advanced the core of acquisition to significantly enhance our Euro gas exposure, which is planned to close on March 31st of this year, and we completed the strategic acquisition of Leucrotta Exploration, marking Vermilion's entry into the prolific Montney resource play, which has significantly increased the depth and quality of our drilling inventory. Looking at our financial results, Vermilion generated record fund flows of $1.6 billion and record free cash flow of $1.1 billion, representing a year-over-year increase of 78% and 99%, respectively. These results were achieved despite a $406 million of realized hedging losses and $223 million of temporary European windfall taxes. This free cash flow allows us to fund over $500 million of strategic acquisitions, reduced net debt by over $300 million…

Thank you, Dion. As Dion mentioned in his earlier remarks, our Australia production will be offline for the first quarter and is expected to restart in Q2. As a result, we expect our Q1 production to be in the range of 80,000 to 82,000 BOE a day. We are also revising our full-year 2023 guidance to a range of 82,000 to 86,000 BOE a day, to reflect the planned Southeast Saskatchewan asset sale and the impact of the Australia downtime. We have also updated our financial guidance within the table on the right-hand side of this slide. Most notable would be an approximate $1 per BOE reduction in our operating costs due to the planned asset sale and lower European gas prices. Our cash taxes and windfall taxes are also expected to be lower as a result of weaker European gas prices. On an absolute basis, we now expect the temporary European windfall tax for 2023 to be $200 million or less, compared to the $300 million guidance we provided with our budget release in January. Slide 11 provides a historical and forward-looking view of our FFO in the red bars and debt levels in the blue bars, and serves to illustrate the significant improvement in the resilience of our business. When you look at our results prior to 2022, you can see that our business was generating annual FFO in the $800 million to $900 million range, excluding 2020, while operating with $2 billion of debt implying leverage of over two times. As you look at our 2022 results and forward projections for 2023 and 2024, you can see that we are generating significantly more FFO even after factoring the impact of the temporary windfall tax. We have benefited from strong commodity prices, specifically European gas to proactively derisk…

Thank you, Lars. As you can see from the presentation today, we delivered on strategic priorities over the past two years and continue to reposition Vermilion for long-term success. Summarized, we generated record financial results in 2022, largely driven by strong European gas prices, which demonstrates the value of Vermilion's international diversified asset base. European gas fundamentals remain strong, and we expect elevated prices to persist for the foreseeable future. The divestment of non-core mature assets within our Southeast Saskatchewan operations unlocks funds to accelerate debt reduction, reduce unit costs and improve capital efficiencies Combination of Corrib, Montney and Powder River acquisitions enhance the overall inventory, profitability and free cash flow of Vermilion's portfolio. Our focus on debt reduction and growing free cash flow over the past several years has made Vermilion a much more resilient company today. Finally, the reinstatement of a quarterly dividend and the commencement of our share buyback program in 2022 demonstrates our commitment to returning capital to shareholders and sets us on a path for increasing returns in the year ahead. That concludes my prepared remarks. And with that, I'd like to open it up for questions.

[Operator Instructions] Our first question comes from Amir Arif from ATB Capital. Your line is open. Please go ahead.

Thanks. Good morning, guys. Just a quick question on the Montney development plans. Just with the shift back to BC. I think you have 10 wells planned this year. Could you just give us a sense of how many of those wells are on the BC side. And I know there's no guidance for 2024 yet, but you do have plans to ramp up to 13,000 barrels next year. Is that more of a second half weighted production outlook in 2024?

Thanks for the question. Yes. No, I'll just summarize. We'll -- I'll pass it over to Bryce just to provide a summary of our activity in 2023 this year, the number of wells we're drilling. And then we can talk later our current plans for 2024. But Bryce, do you want to summarize our activity this year and outlook for 2024 as well?

Yes, for 2023, thanks for the question. We're planning to drill nine wells in 2023, seven of them are in Alberta, two of them are on the BC side of the property, thankfully because we've received some permits on the BC side. And really the plan for 2023 is to drill to fill our existing infrastructure capacity. We have a three-well pad in Alberta that we started in December, initiated completions in February. And we'll have those wells on production in April. The two-well pad in BC, we drilled in February, and we're going to initiate completion operations in March, and we'll have them on production in May of this year. Incidentally, the first well on that BC pad was the pacesetter well for the area. We drilled 6,000 meters measured depth in nine days. So we're very happy with that. And then we're going to pivot back to drilling the third pad in Alberta in March and April, completed after breakup, and we'll be bringing that on likely in Q4 of 2023.

Thanks, Bryce.

And then just in terms of 24 plants, like I know you've talked about production getting up to 13 or average of 13 next year.

Bryce, do you want to just summarize our plans for 2024.

Yeah, high level, our plans for 2024 to drill 10 or 11 wells, really the focus in 2024 is building out our BC infrastructure, which is the 8-33 battery that we're going to build out in 2024, targeting production in that 12,000 to 13,000 BOE a day level for 2024. All wells would be in BC right now for our plans for 2024 as well.

Got it. Appreciate that. And then just on the reserves, I noticed there was some negative technical revisions, -- is that just reflecting the higher operating cost structures we're seeing in the industry, or is there anything else driving that?

Thanks. I'll pass it over to Jenson to address that question.

Yes. So, we did have some technical revisions Mostly in Saskatchewan this year. Really, what we did is looked at our reserve book in the context of our capital allocation priorities. And as we brought in the Montney, Mica asset, the other assets just weren't able to compete for capital. And so those were an opportunity for us to just take some of the locations in Saskatchewan on the book. That is aligned with what we talked about as high grading our portfolio. I would highlight that, our – despite the technical revisions, our RLI has increased over time, and this year, we're now sitting at 16.8 years.

Thanks, Jenson.

Yes. I appreciate the color there. And then just finally on the buybacks, I know you've become a little more aggressive year-to-date on the buybacks, but you've also bumped up the dividend, just in terms of your allocation of the 25% free cash allocation? Is it just to keep the dividend at a higher rate and allocate the rest to the buybacks?

Thanks. I'll pass over to Lars to address that.

Yeah, that's bang on, Amir to our strategy here. What we will look to do is return that incremental capital to shareholders in terms of that up to 25% through share buybacks. And we think we have ample room to increase the base dividend over time. But we have made the increase here in the first quarter of 2023. So our focus will be on share buybacks.

Terrific. Thanks, guys.

Thanks, Amir for the questions.

We will go next to Menno Hulshof with TD Cowen. Your line is open. Please go ahead.

Thanks, and good morning, everyone. I'll just maybe start with a follow-up on shareholder capital returns. I'm just looking at your December slide deck, and you had a detailed table for return of capital, outlining how you expected to transition from 25% to 50% and eventually up to 9%. But I don't think I've seen that table since. Is that still the plan, or could we see you take a more measured approach?

Thanks, Menno. I'll pass it over to Lars to address that question.

Yeah. Thanks, Menno. The focus for 2023 will be on achieving that $1 billion absolute debt target. What we are managing between is debt reduction and shareholder returns through buybacks. Our view at the end of the day is that both of those allocation of capital will increase equity value for the shareholders. I mentioned in my prepared remarks that, we have not set a debt target for 2024. But what shareholders can expect is as we achieve that $1 billion absolute debt target, we would then move into the 25% to 50% range that we illustrated earlier today versus the up to 25% this year. So that's the direction that we're providing to shareholders in terms of continuing to have those debt balances guide our pace of return on capital.

Okay. Thanks for the confirmation Lars. And the next question I'm going to ask because I'm getting the question, just on the $570 million budget for 2023, it's unchanged. Despite the drop in production guidance, in the release you talked about the key driver being minimal capital being spent on the Saskatchewan assets that you sold. So the question is, does that explain all of it, or were there other moving parts that we should be aware of?

Thanks, Menno. So you're speaking to production or capital? Capital, yes?

The $570 million.

Yes. No, that's -- as mentioned as part of our prepared remarks, those assets, we've been working on that process for a while. And so our expectation was that we would be able to divest of those assets, but these things go, you're never sure until you're able to get it across the line. So from a budgeting point of view, we weren't allocating much capital at all to those assets, which again, in line with their strategy that they weren't attracting capital. So, that's the reason there's no -- effectively no change to our capital budget even with the divestment of those mature assets within Southeast Saskatchewan.

Thanks. I'll turn it back.

Okay. Thanks, Menno.

We’ll go next to Josef Schachter with Schachter Energy. Your line is open. Please go ahead.

Good morning, Dion and Lars, et cetera. Just wanted a question about what's going on in Europe with Germany now having its first LNG import and others money coming in, are they still keeping their coal-fired and nuclear is open, or is -- or are they going to be closing those in the next year or two to meet their climate goals? And does that build up a potential bigger opportunity in natural gas for LNG imports in the States and, of course, higher prices for you in Europe and if you have higher volumes and much greater returns?

Thanks, Josef for the question. And I think you've -- we've had those comments as well in the past around when you look at the outlook in Europe. I mean, most of the conversation in the recent year has been how to displace or attract LNG to backfill the missing volumes that we're being provided by Russia and that itself is quite significant. When you think of the materiality of that volume, it's equal to all of the U.S. Gulf Coast LNG export capacity. So that's why, again, there's been a lot of tension around LNG supply. On the LNG importing, you're right, Europe has continued to terminating particular to get these import facilities. But that's really -- again, you got to compete for that LNG against the backdrop of increasing demand across the globe. To your point on the future outlook, I agree. I mean, the gas has been recognized in Europe as a necessary transition fuel. As you look at the jurisdictions, Germany, in particular, which is the largest economy, large industrial country in Europe, their plan is to retire old facilities and retired nuclear facilities and they're effectively done on the nuclear side. So 40% of their energy comes from coal, lignite and nuclear. And so that's a significant part of their economy that ultimately will need to be replaced by other form of energy. And again, I think natural gas will be a big part of that. What we like about our land base in Germany is we've got just under 1 million acres of land that's covered under 3D seismic. We've got infrastructure in place, given the -- its mature asset that we've been able to buy from others and work those assets harder. So we see several larger prospects that we've been maturing through the pending process, and we've had good work with the stakeholders there to continue to advance those permits to be able to start that drilling program late this year. So we like Germany. We think there's a need for gas. I think the demand is going to grow. And again, we like the prospectivity of our asset base there as well.

Glad to hear that. Anything changing in Netherlands where they were at one point trying to close down farms and methane gas from the animals and the issues of permitting, is Netherlands getting worse or better to work with?

I would say the NOx emission is something that we're monitoring as well. We're able to mitigate that with our systems. For example, that's not a new issue. So when we select rigs and equipment, those kind of things. They're all geared around managing NOx emissions. We're drilling in the Netherlands right now. As part of our drilling program, we referenced well that we drilled earlier as well. So we continue to get permits in Netherlands. We continue to drill two to four wells a year. We're drilling now. So it's an area that we'll continue to work with, again, all stakeholders there. They've got what they call a small field development. So a policy in which we are looking for tools that are in that two to 10 BOEs [ph] of gas and those are the ones that we target for our drilling program, and it's got a strong track record of being able to bring that gas to market.

Sure. Thanks very much guys for answering my questions.

Thanks, Josef.

And with no other questions holding, Mr. Hatcher, I'll turn the conference back to you for any additional or closing comments.

Well, thank you again for participating in our Q4 results conference. With that, we'll close the meeting.

Thank you. Ladies and gentlemen, that does conclude today's call. We thank you for your participation. You may disconnect at this time.